Disruptors – Not Manufacturing Hubs – Make Ethiopia’s Economy Great

Establishing a manufacturing hub is indeed necessary to becoming a lower middle-income country. But in the face of the Fourth Industrial Revolution, Ethiopia’s best bet is human capital, which the government should give greater focus to by improving the educational system, writes Nima Khorrami (n.khorrami.a@gmail.com), a political risk consultant.

Disruptors - Not Manufacturing Hubs - Make Ethiopia’s Economy Great

As Ethiopia continues to march toward economic development and political reform, time is ripe to take stock of the state’s objective, strategy and tactics in achieving and preserving the highly-publicised goal of becoming a lower middle-income country by 2025.

To this end, there seems to be a consensus among the political elites of the country that the surest and safest way forward is through an economic undertaking identical to that of China.

The China model puts a heavy focus on the establishment of nation-wide manufacturing and industrial hubs. The sentiment is shared by many Africa watchers and experts who prescribe rapid manufacturing as the solution to Africa’s, and by extension Ethiopia’s, myriad socio-economic problems.

If Ethiopia is to achieve its main objective of improving living conditions and tackling chronic poverty, it is argued that it must formulate and implement an economic strategy with its central, or perhaps sole, tactic being confined to the establishment of a vibrant manufacturing sector.

While the objective is certainly the right one to have and aim for, it seems that the strategy and the resulting tactic embedded within it are at best short-sighted and at worst entirely misguided and irrelevant to the realities of the emerging world. Instead, the focus ought to be on human development with the overhauling of the educational system as the main priority.

Manufacturing does contain high employment potential within it and hence comes across as a reasonable enterprise to vie for. But the ongoing revolutionary changes within the industry – better known as the fourth Industrial Revolution – brought about by technological advances such as artificial intelligence cast doubt over the utility and longevity, let alone sustainability, of pursuing a Chinese model of development.

Perhaps, a prime case in point is China’s own abandonment of traditional manufacturing methods. Sure, Beijing’s departure from traditional modes of production is not only due to emerging automation trends, but it is nonetheless one of the main driving forces.

Closely linked to the above, the championed development framework is not only heavily export-dependent but has low labour costs as its main variable to the extent that its absence could make the whole model almost dysfunctional.

The dangers here are two-fold. On the one hand, a process of ‘re-shoring’ is likely to happen if automation reduces the cost of manufacturing and thus work previously sent abroad would return home. There is then the inherent risk of commodity dependence in pursuing a manufacturing strategy, which makes the host nation highly vulnerable to price fluctuations caused by factors over which it exerts no control.

Last but certainly not least, even if we were to consider that manufacturing has advantages in the short run, these can only be reaped fully if the know-how, be it in management, logistics or operations, can be effectively transferred to and retained by the local workforce.

This requires the presence of a skilled and attentive workforce, which is not the case today as is evident in the high number of dropouts from factories.

It follows then that the priority must fall on reforming the educational system by introducing a strong element of professionalism and pride into it as well as its synchronisation with the demands and trends in the job market. The good news here is that few governments, proportionately, in the world allocate as much of their revenue to education as the Ethiopian government has done for the past decade. This fiscal year’s budget for education stands at over 1.5 billion dollars

Equally pleasant is the fact that access to primary education is almost free and that Ethiopia has now one of the highest enrollment rates in Africa.

The bad news, however, is that the quality and content are substandard and irrelevant to the needs of the private sector and the broader economy. They are also peripheral to the future and emerging trends in the job market. This is not to mention the depressing rates of job satisfaction among teachers and a dire shortage of qualified academics.

There are steps that the government can take to improve the situation though. Primarily, it should increase the basic salary rates for teachers while, simultaneously, incentivising optimal performance through the introduction of market elements into the sector, whereby high performing schools are entitled to a yearly bonus.

Gradual privatisation, semi or full, is another step in the right direction provided that the fabric for such an undertaking is expert-led and de-politicised. Finally, in an attempt to address the shortage of qualified teachers, the government should actively explore options, and look for qualified partners, to introduce remote learning initiatives in order to ensure access to quality education for all, regardless of their geographical location.

On a more substantive level, there is an urgent need for the state to set in motion a paradigm shift in its educational framework to teach and encourage creative thinking and complex reasoning. Both will be of immense value in the digitized, interconnected and highly automated market economies of tomorrow.

The aim here is to be able to train a future cohort of local entrepreneurs who can establish successful internet-based enterprises while resolving and catering to various communal and national shortcomings. The talent to be nurtured is undoubtedly there as illustrated by the likes of Betelhem Dessie, an up-and-coming young coder, and Christian Tesfaye, founder of an agri-tech firm.

This could be complemented by a scheme to turn Ethiopia into the start-up hub of Africa by attracting young talent from across the continent into sectors such as aviation, where the nation already has an advantage.

Similarly, an effort ought be made to introduce and speed up experimental learning via vocational education for pupils to receive relevant training specific to a job and acquire skills that are in high demand. This way, the current “loose foot” problem can be resolved, and a culture of social responsibility might emerge in which companies experience a direct link between their increased profitability and investment in their workforce.

Here, Ethiopia ought to partner with the likes of Finland, Germany and Switzerland which have mastered the use of vocational education as opposed to more traditional, degree-based forms of education. In doing as such, the government is well advised to frame its pitch as a longterm endeavour to stop mass immigration into Europe.

Ethiopia can only achieve and preserve its desired goal of becoming a lower middle-income country if it manages to create a highly skilled and gender-equal workforce in line with the realities of its economy today and its national vision for the future.

Failure to do as such would almost certainly retard its medium and longterm human capital development and, as a consequence, its longterm economic growth potential. This would deepen poverty and youth unemployment, increase the likelihood of societal instability and, worst of all, accelerate the brain drain.

By Nima KhorramiNima Khorrami (n.khorrami.a@gmail.com), a political risk consultant.